CLOUD COMPUTING AND THE FUTURE OF RETAIL

Cloud
Form
Cloud computing and
the future of retail
by Martin Vilaboy
Partly because of the inherent complexities
and partly due to overzealous
marketing, any discussion of “the
cloud” should probably start with a
clarification of what exactly “cloud
computing” means to technology decision
makers. Some have said the cloud is simply a euphemism
for the Internet. Others argue that it’s really
nothing new but rather just a return to “centralized”
versus “distributed” computing, made accessible now
by the ubiquity of high-speed data networks.
As much truth as there may or may not be in
these oversimplifications, neither should be used as
an excuse to disregard the importance of what the
cloud is and can do, particularly when it comes to
the retail business. As it turns out, many of the benefits
wrought by moving IT components to the cloud
directly address the daunting challenges and macro
trends facing retail IT departments today. In fact, it’s
even possible that the retail segment, at least in the
short term, has more to gain from the cloud trend
currently sweeping the IT world than most any other
industry vertical. Indeed, many retail analysts and experts
believe that a transition to the cloud could prove
necessary to individual retailer’s survival long term.
Getting back to the beginning, The National Institute
of Standards and Technology, for its part, defines
cloud computing as, “a model for enabling convenient,
on-demand network access to a shared pool
of configurable computing resources (e.g., networks,
servers, storage, applications and services) that can be
rapidly provisioned and released with minimal management
effort or service provider interaction.”
NIST’s definition may or may not clear things
up. If not, most specialty retailers can think of cloud
computing as a model by which computing and IT
services and capabilities can be accessed anywhere,
on any device, through the Internet. That differs
from the traditional IT delivery model, whereby
hardware, such as servers and storage devices, as
well as software purchased through a license, would
reside at the physical location at which they are being
used. In the cloud, on the other hand, equipment and
business applications are housed on servers in large
data centers where a paid or “for-free” provider hosts
14 | InsideOutdoor | Spring 2011

Ongoing concerns about solution
vendor or service provider stability
and longevity
We don’t like sharing our
innovations with outsiders
Source: RSR Research
18%
5%
16%
9%
0 10 20 30 40 50 60 70 80
ations
How much do each of the following factors influence how
your company’s technology portfolio will change?
We want to spend less time on “catch up”
investments in IT, and spend more time
differentiating with IT-enabled capabilities
52%
48%
We need to shorten the lead time
to customer demand fulfillment
47%
48%
and manages the solutions, as well
Rapid
as
consumer
cloud
adoption
or engage
of new
a third-party provider at Retail Systems 47%
technologies such as “smart mobile”,
Research, with the
the user’s experience with “social them. media”, Cloud etc. is forcing to host us and to “go manage faster” it – either on site or user having 34% no knowledge or concern of
services ranging from raw infrastructure off. A private cloud provides restricted where any individual piece resides.
We need to overcome an ingrained “not
41%
to complete business processes invented (email, here” attitude access and take to the advantage computing capabilities and “This is different than a simple hosted
of what’s commercially available
31%
accounting, CRM, scheduling, forecasting,
resources to be shared only by employ-
application accessed remotely,” says RSR.
as examples) are purchased and ees or external partners, such as distrib-
“Parts could well reside on a local device.
We need to reduce ongoing maintenance
41%
accessed through Web interfaces. costs associated with utors owning and manufacturers.
solutions
It’s completely location 45% agnostic.”
That might sound a lot like how
Most retailer deployments up to this
we’ve come to know and use the Internet,
point, suggest findings from
Winners
Accenture, involve
OthersCut and Paste
you might say. In many ways, this
is precisely how routed networks based
on Internet protocol (IP) work, and the
pervasiveness of high-speed access is
largely what makes cloud computing so
powerful. But before you start cringing
over the idea of placing your customer
data or communications services on the
either a private cloud or some type
of Source: “hybrid RSR model,” Researchthe managed combination
of both private and public clouds.
“So, for example, low level data and
access may well be suitable to go onto a
public cloud infrastructure service with
simple password access, whereas ultra
The primary promises of the cloud
include enhanced flexibility and speed
at significantly lower costs, and few
vertical markets need to drive such advantages
out of their IT infrastructures
during the next several years more than
retail/wholesale.
wild and open Internet, it’s first important
to have an understanding of the
differences between the “public cloud”
The shopper is better connected to consumer information
than store associates.
(Percentage of responding retail employees)
and a “private cloud.”
According to executives at IBM, the
Completely
Agree
Neutral Disagree Completely
Agree
Somewhat
Somewhat Disagree
infrastructure in a public cloud is owned
and managed by an organization selling
cloud services and is made available to
the general public. In this model, computing
capabilities typically are accessed
17% 37.5% 26.1% 15.3% 4.1%
by multiple subscribing clients on a flexible,
pay-per-use basis.
Most people associate the public
cloud with “community-based” offerings
0%
Source: Motorola Solutions
50% 100%
accessed over the public Internet,
such as Google Apps, explains Joe
Corvaia, vice president of solution
engineering at cloud services provider
Broadview Networks.
secure data may require dedicated secure
servers housed in ultra-secure data centers
with strong authentication required
for access,” explain Accenture analysts.
Cloud computing also differs somewhat
For starters, the retail industry
doesn’t like to spend a lot on technology.
Retail IT operating budgets, as a percentage
of revenue, are typically among
the lowest of all the major industries,
from for the Using purely the “centralized Cloud com-
The infrastructure in a private Initial cloud, Opportunities
and we don’t expect that many retail
on the other hand, is operated solely puting” model in that pieces and parts CFOs are anxious to shake this dubious
distinction. By moving IT resources
for a particular user organization. Easy This of an application and its associated data
New Busin
organization can either own the private can reside anywhere, explain analysts to the cloud, retail IT departments
•
can
Provide IT support fo
Business Continuity (storage)
• Extensive storage
• Back up & recovery
Spring 2011 | InsideOutdoor | 15
Batch and data intensi
• One-off applications that don’t r

We need to overcome an ingrained “not
invented here” attitude and take advantage
of what’s commercially available
31%
41%
We need to reduce ongoing maintenance
continue
costs associated
to do
with
more
owning
with
solutions
less by all but
eliminating the cost of servers, software
licenses, maintenance fees, IT labor and
data center space and the electricity to
Source: RSR Research
power and cool them. IT cloud solutions,
rather, can be purchased on-demand,
only as needed, replacing large upfront
investments with a monthly recurring
cost or a pay-per-use operating expense.
“The no-obligation, month-to-month
subscription allows retailers to fine
tune their IT spend,” says Jim Saffron,
than store associates.
president of GreenAppX, a Charlotte,
N.C.-based reseller of cloud-based communications
and business services.
And replacing opex Completely
Agree
for capex is just
the beginning. According to one IBM
study, 70 percent of retail IT budgets, on
average, is spent maintaining current
infrastructures, with annual operational
costs (such as power, cooling and
management) of distributed systems and
networking often exceeding double their
acquisition costs. Source: What’s Motorola more, Solutions these
costs continue to increase.
In the cloud computing model,
however, the management, maintenance,
housing of equipment, software updates
Winners
41%
and system upgrades all are handled 45% by
the cloud provider as part of the service
at a flat or Others per-use fee. In addition to
eliminating variable support cost, this
also allows the retailer to focus on its
core business while maintaining minimal
in-house staff and expertise.
Then there’s the issue of utilization.
Studies by IBM suggest that utilization
rates of commodity servers, for example,
hover around 5 percent to 15 percent.
In other words, “as much as 85 percent
of retail computing capacity sits idle in
distributed environments,” argues Vish
Ganapathy, solutions architect for the
retail industry at Neutral IBM. Disagree
Somewhat
This is one area in particular that
retailers are attacking early on through
a cloud strategy, says Don Douglas, 15.3% 4.1%
president and CEO of Liquid Networx,
a San Antonio, Texas-based provider
of network managed services and IT
lifecycle management.
“We see retailers using the cloud to
minimize footprint at remote locations,
which reduces costs, provides flexibility,
speeds advances to market and usually
enhances security,” says Douglas.
The shopper is better connected to consumer information
(Percentage of responding retail employees)
Agree
Somewhat
17% 37.5% 26.1%
0% 50% 100%
“These benefits can be achieved fairly
quickly by implementing a private cloud
that is supported at headquarters and
by having the different locations utilize
those resources.”
As Douglas suggests, arguably as
important as the IT cost savings are the
elements of “speed” and “flexibility.”
While retail is not the first and only
industry to feel the disruption of the
digital revolution, few verticals face
the types of transformational shifts that
retailers face in terms of changing consumer
behaviors and expectations. From
smartphone-enabled shoppers, mobile
Completely wallets and geo-location campaigns
Disagree
to Groupon and social networking to
QR codes and RFID to localized assortments
and personalized promotions, the
move online has come to represent lots
more than a new sales channel. Indeed,
a pervasive Internet and its “anytime,
anywhere, any device” digital technologies
have ramped up the level of
competition for everyone, subsequently
squeezing margins and forcing retailers
to re-evaluate every aspect of their businesses.
Success moving forward, at least
Initial Opportunities for Using the Cloud
Easy
Ease of Implementation
Business Continuity (storage)
• Extensive storage
• Back up & recovery
Desktop productivity
• Web 2.0 applications
• Workgroup applications
• Office suites
• Email and calendaring
Software development and testing
• Development and testing environment
• Performance testing
• Non production projects
• R&D activities
• Reduced time to market
Geographic expansion
• Replicate standard processes in new
locations and branches
New Business
• Provide IT support for new ventures
Batch and data intensive applications
• One-off applications that don’t rely on real-time responses
• Data and high performance intensive applications
(financial risk modeling, data compression,
graphic rendering, simulation, etc.)
• New back office applications
Peak load demands
• New business activities
• Applications with peak loads
• Seasonal Web sites
• Applications with scalability needs
Hard
Legacy
• Specific existing infrastructure
• Complex legacy systems
Sensitive applications
• Mission critical applications
• Regulation-protected data (PCI, SOX ...)
Source: Accenture Technology Labs
Value to the Enterprise
High Value
2
16 | InsideOutdoor | Spring 2011

as far as any trend- or fashion-based
retail goes, likely will require shorter
cycle times, more specialized inventory,
tighter supply chain integration,
faster and more effective execution of
sales and marketing and more efficient
resource planning.
“Business conditions and cycles have
sped up dramatically,” warn analysts at
Retail Systems Research, “the consumer
is stunningly technologically savvy, and
business departments, most especially
marketing, must respond.”
“In general, total disclosure is available
to anyone, anywhere from any
device,” says Saffron. “Retailers need to
use the same tools that the smart consumers
use to improve infrastructure,
delivery and support of their products.”
Unfortunately, the IT infrastructures
of most outdoor stores, and across the
greater specialty retail market, simply
aren’t ready to take advantage of the
opportunities, and those that C aren’t will
find it increasingly difficult
M
to compete
in the consumer driven reality of omnichannel
commerce and fulfillment.
Y
CM
“IT can no longer dictate the pace,”
MY
say RSR researchers, “and so it has no
choice but to move faster.” CY
When asked to name the impediments
to improving IT effectiveness,
retail IT decision makers repeatedly cite
slow and outdated infrastructures that
aren’t able to keep up with consumer
capabilities and emerging business
needs, show surveys by RSR. The top
technical inhibitor is ongoing maintenance
of legacy infrastructures, named
among the top three by 64 percent of
respondents. Retail IT directors also say
they must spend less time on “catch up”
investments, more time differentiating
with IT-enabled capabilities and need
more speed to shorten the lead time to
customer demand fulfillment.
“We see retailers constantly exploring
new business models and adding new
capabilities to their application portfolios,
which in turn increases the complexity of
IT infrastructure and volume of data and
demands more computing power,” says
Ganapathy. But through the efficiencies of
shared resources, automation, on-demand
scalability and by leaving the development,
service delivering and maintenance
of solutions to the IT and communications
experts, “cloud computing can reduce the
IT costs of managing existing and new
systems,” he continues.
CMY
Components of the Cloud
K
Although cloud computing is still an
emerging model with many of the rules
yet to be written, the general consensus
within the IT industry is that there are three
primary categories of cloud services. Below
we provide a brief description of each one
and how retailers can benefit from each,
courtesy of IBM.
Software
as a Service
Software as a service (SaaS) is the
distribution of software hosted by a provider
in a central and remote location and made
available to consumers over a network.
SaaS uses a pay-as-you-go pricing model,
which decreases or increases the number
of software licenses based on need, without
having to procure, install or maintain
software or hardware or incur ongoing
maintenance costs. When retailers use
the SaaS delivery model, they can access
business applications, such as accounts
payable and customer loyalty, virtually.
Platform
as a Service
With platform as a service (PaaS), the complete
application development and deployment
platform (both hardware and software) can be
delivered as a service, typically over the Internet.
Developers can create, test, deploy and host
applications quickly without having to bear the
cost and complexity of buying and managing the
underlying software and hardware. PaaS is often
referred to as “cloudware.” In some cases, Web
services, Web 2.0 capabilities and middleware
are offered as an integrated platform on which
applications can be built, assembled and run.
Infrastructure
as a Service
Infrastructure as a service (IaaS) provides
hardware components such as servers, network
equipment, memory, CPUs and disk space. With
IaaS, a retailer could run all operations without
installing and maintaining in-house data
centers. The approach to the delivery of these
services varies from provider to provider.
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“Cloud computing opens the door to
new capabilities including new business
processes and new application solutions
that are retail industry specific at
a price point that is remarkably lower
than traditional solutions implemented
only one to two years ago,” Accenture
analysts concur.
Whereas the development or expansion
of services and applications
traditionally required large upfront
investments in hardware and in-house
expertise, cloud customers can purchase
only what they need and pay
only while they need it. A company can
utilize a dozen servers on Monday and
a hundred on Tuesday, for example, or
take advantage of a cloud provider’s
free or low-cost development tools.
Capabilities such as scenario modeling,
forecasting, pricing optimization
and real-time inventory management
– which tend to be “lumpy,” time-consuming
and data-intensive processes –
therefore can be done more quickly and
cost-effectively, say cloud proponents.
At the same time, software solutions
that are bought on a pay-per-use basis
can be quickly and easily integrated
into existing IP platforms.
“A wide variety of business applications,
with unified sales, support,
transaction and provisioning, can
be accessed under one secure single
login,” says Saffron. “From this Webbased
dashboard, a small business can
order product, initiate a support ticket,
collaborate with colleagues, lock down
and protect all of their computers, back
up critical data, and even manage their
customer relationships all from the
cloud. That type of tight technology
integration ultimately increases efficiency,
reduces redundancy and lowers
the cost of sales.”
“Think about the Y2K conundrum
and how much work businesses had
to do to update their systems,” says
Douglas. “If those businesses were
properly utilizing the cloud at that
time, the scope of their projects could
have been significantly reduced to
the point that it may have been just a
service migration project.”
One area where the cloud is particularly
efficient is in the handling of
data. Every retailer knows that POS
Maintenance of our Top legacy Three portfolio Technical Inhibitors to Improving IT
64%
of IT solutions prevents the company
from addressing Effectiveness new needsand Responsiveness
73%
Past under-investment in IT infrastructure
61%
prevents us from moving fast enough now
Maintenance of our legacy portfolio
64% 73%
of Our IT solutions IT development prevents methodology the companyis
rigid and takes from too addressing long. Business new needs needs
43%
73%
change by the time we get a new
Past under-investment solution in IT infrastructure
implemented
55% 61%
prevents us from moving fast enough now
The company under-invests in staff
34%
73%
Our IT development training when methodology business is or
rigid and tech takes changes too long. are Business implemented needs
36%
43%
change by the time we get a new
solution implemented
55%
A “not invented here” mentality within IT
20%
The company under-invests in staff
18% 34%
training when business or
The tech IT changes organization are implemented
is resistant to
20% 36% All Respondents
relinquishing control of development
efforts to business leaders
18%
A “not invented here” mentality within IT
20%
Revenue > 1Billion/Year
Ongoing concerns about solution
18%
vendor or service provider stability
The IT organization is and resistant longevity to 5% 20%
All Respondents
relinquishing control of development
efforts We don’t to business like sharing leaders our
16% 18%
Revenue > 1Billion/Year
Ongoing innovations concerns about with outsiders solution 9% 18%
vendor or service provider stability
and longevity 0 5% 10 20 30 40 50 60 70 80
We don’t like sharing our
16%
innovations Source: with RSR outsiders Research
9%
0 10 20 30 40 50 60 70 80
Source: RSR Research
We want to spend less How time much on “catch do up” each of the following factors influence how 52%
investments in IT, and your spend company’s more time technology portfolio will change?
differentiating with IT-enabled capabilities
48%
We want We to need spend to less shorten time on the “catch lead time up”
investments to customer in IT, and demand spend more fulfillment time
differentiating with IT-enabled capabilities
Rapid consumer adoption of new
technologies We need to such shorten as “smart the lead mobile”, time
“social media”, to customer etc. is forcing demand us to fulfillment “go faster”
We need to overcome an ingrained “not
invented Rapid here” attitude consumer and adoption take advantage of new
technologies of what’s such commercially as “smart available mobile”,
“social media”, etc. is forcing us to “go faster”
We We need need to to reduce overcome ongoing an ingrained maintenance “not
invented costs here” associated attitude with and owning take advantage solutions
of what’s commercially available
We need to reduce ongoing maintenance
costs associated with owning solutions
Source: RSR Research
Top Three Technical Inhibitors to Improving IT
Effectiveness and Responsiveness
How much do each of the following factors influence how
your company’s technology portfolio will change?
systems and loyalty programs generate
massive volumes of
Source:
customer
RSR Research
data, and
the management of that data, currently
vastly underutilized, will be increasingly
crucial to delivering personalized
that make it more timely and affordable
to capture and utilize customer
data. Many retail-specific cloud providers
also will have the ability to
track performance of products and
service. Of course, real-time The shopper and actionable
is better brands connected in comparison to consumer to previous information time
analyses of customer than store data can associates. periods, identify trends and seasonal-
require lots of time and (Percentage huge capital of responding ity components, retail employees) monitor performance
and operating expenditures, The shopper often is unaffordable
to retailers. than Completely store associates. Agree retailer, improving their Neutral ability Disagree to Complete
better and connected provide to analytical consumer results information to the
Cloud providers, (Percentage Agree
on the other of hand, responding Somewhat
forecast retail customer employees)
Somewhat
behavior. And since Disagree
possess the massive computational the data is centralized and accessible
power and statistical Completely modeling 17% tools Agree by 37.5% the ubiquitous Internet, Neutral 26.1% data Disagree can 15.3% 4.1% Completel
Agree
Somewhat
Somewhat Disagree
18 | InsideOutdoor | Spring 2011
17% 37.5% 26.1% 15.3% 4.1%
Winners
Winners
Others
Others
34%
47%
52%
48%
48%
47%
47%
48%
41%
47%
31%
34%
41%
41%
45%
31%
41%
45%

e more easily shared among internal
departments, as well as external partners
and suppliers, thereby improving
inventory management.
Meanwhile, cloud computing helps
retailer better manage the peaks and valleys
of seasonal and unexpected demand.
“In a typical IT environment, retailers
need to scale fixed datacenter resources
in advance of demand spikes,” says
Fred Bentfeld, general manager of U.S.
distribution and services sector at Microsoft.
“This leads to wasted capacity and
increased costs.”
Even worse, it can mean an under
supply. But by taking advantage of cloud
computing, retailers can dynamically
adjust to the very dynamic nature of demand,
says Bentfeld. “Retailers only have
to pay for the level of service they need,
without the costs of unused capacity or
under-supply of capacity.”
Likewise, emerging technology platforms
such as social media, e-commerce
engines, search optimization and mobility
solutions already exist “in the cloud,”
so this emerging IT model “can enable a
retailer to engage with its customers in
unique and novel ways without the level
of capital investment typically required
to build and support a new channel,”
say Accenture analysts.
In short, cloud computing provides
retailers with a cost-effective and infinitely
scalable path to launching new
capabilities and rebuilding architectures
at a time when existing systems are
becoming dangerously obsolete.
Of course, moving to the cloud
doesn’t have to be an all or nothing
affair. IT systems and capabilities can
be cherry picked for cloud adoption in
order to allow existing investments to
adequately run their course. Similarly,
it’s understandable that retailers would
be reluctant to hand over confidential
customer data or POS systems to a
third-party provider.
With that in mind, cloud proponents
and consultants recommend retailers
start by migrating low-hanging
fruit, such as workgroup applications
or non-mission-critical, non-integrated
applications. Then be ready to scale
once the benefits are proven and concerns
alleviated.
Not that it will be easy. Ongoing integration
with existing systems has proven
a sticking point for some, as has security.
As with most technology, overcoming
these hurdles will require the expertise
of a trusted advisor.
“Any retailer that uses cloud-based
services needs to make sure that all
their vendors follow strict and contractual
guidelines on privacy policy,
use a secure SSL to safely access their
services through public networks and
have a firm policy about data ownership,”
Saffron warns. “If a provider of
cloud-based services is fuzzy about
who owns the data and how it can be
affordably moved to another vendor,
move on and find another.”
“The more sensitive the data, the
more important it will be to validate
where the data resides and how it is being
protected,” Douglas concurs. “Transparency,
vendor management programs
and strong service level agreements
(SLAs) will be paramount.”
Spring 2011 | InsideOutdoor | 19